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Gold's Decade-Long Bull Run Is Dead, Gartman Says


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Gold's Decade-Long Bull Run Is Dead, Gartman Says

Over the last couple of years, gold’s precipitous, and continued, rise fueled causal theories, with some investors attributing it to U.S. dollar weakness, others to a safe haven trade in the face of widespread market turmoil, an inflation hedge, or whatever they could correlate a chart with. The yellow metal, though, appears as a Humean experiment in causality, marrying no single trend.

Gold has fallen nearly 9% since late February, trading at $1,628.5 an ounce on Thursday in New York. Gold went on a rollercoaster ride over the last 12 months, rising to an all-time high above $1,900 last spring, then tanking about 18% to December, then rising a further 15.5% to this February.

According to Gartman, gold’s latest price action confirms the trend line has clearly been broken, indicating we’ve been in a bear market for 12 months, since it peaked. In Thursday’s Gartman Letter, “in retrospect it does appear that gold has not been in a bull market but has indeed been in a bear market” since August 2011, when it peaked above $1,900.

“Since then,” he added “each new interim low has been lower and each new interim high has followed. How, we ask, had we missed that fact!”

The catalyst for that realization has been the Fed, specifically the latest FOMC meeting and Wednesday’s minutes from that meeting. In both, markets caught a glimpse of a more optimistic Fed that, while keeping the option on the table, has seen the necessity for a further round of quantitative easing reduced by the improved economic performance. UBS’ Edel Tully adds:

The minutes painted a rather more optimistic view on growth, a more convincing take on the basis for the decline in the unemployment rate and most worryingly of all for gold, an acknowledgement by the Fed of the potential for a change in the end-2014 forward guidance.

With the Bernanke Fed guiding markets over the last couple of years, it should come as no surprise that gold prices are very sensitive to monetary policy. Record low interest rates amid a weak global economy pushed nervous investors out of both risk assets and the safety of Treasuries. A weak U.S. dollar, along with massive liquidity injections via QE, helped investors look to gold for it has always been: a store of value.

No QE3 and higher interest rates before late-2014 would cause further damage to gold, as it would signal an improving economic environment where capital should once again channel into productive, and thus riskier, assets. Fed unwinding will definitely deal a deadly blow to gold bulls, so the real question investors should be asking is: are we out of the woods yet?

If the gradual pace of economic improvement in the U.S. and the relative calm of European markets persists, then the global economy might be close to the edge of those woods. Bernanke has remained cautious, noting downside risks still abound, while ECB chief Mario Draghi was blunter on Wednesday saying risks are definitely skewed to the downside. Housing markets in the U.S. remain depressed and labor markets, while healthier, are still relatively weak.

Among the best at illustrating the bear case is Peter Schiff of Euro Pacific Precious Metals. “Don’t catch the recovery fever” he told investors in his daily newsletter, adding “the recovery is not only going to falter – it’s going to evaporate like the mirage it is!”

Schiff expects substantially higher interest rates, which went untested in the recent stress tests on banks, to blow the lid off major financial institutiosn. Large Wall Street names like JPMorgan Chase, Citi, and Bank of America have relied on cheap money from the Fed to keep operating. Rising inflation, as a consequence of money printing and bond buying by the Fed, will force Bernanke to raise rates. From Schiff’s newsletter:

In fact, higher interest rates are not only possible, but probable. The stress tests assume long-term Treasury note yields stay under 1.8%; but that figure is the current six-month low on the 10-year, which is already dragging along its historical floor. As I write, yields are already up to 2.2%. The post-war average is about 5.2% – high enough to crater today’s banking system.

The stage is set for gold to continue falling in the immediate-term. Higher interest rates and an improved economic environment suggest it’s time to put capital back to work. The improving outlook does face substantial threats, though, particularly the European sovereign debt crisis (which promises to flare up again), which could stoke recessionary fears. Add Schiff’s predicted inflation, and you could see the yellow metal rally rise through the ashes like the Fenix. At the end of the day, it all boils down to the true strength of the economic recovery. Stay tuned.

Take a look at the Weekly chart of gold you will notice that peaked in September of 2011 in the 1900's. Since then we have been seeing lower highs and lower lows which indicates a bearish market on Gold.

*This does not mean that gold will not rise again to new highs in the future, however, my prediction is that we will be seeing even newer lows here real soon. Probably in the low 1500's and possible lower than that.

weeklygoldchart.gif

Edited by 20MillionDinar
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Among the best at illustrating the bear case is Peter Schiff of Euro Pacific Precious Metals. “Don’t catch the recovery fever” he told investors in his daily newsletter, adding “the recovery is not only going to falter – it’s going to evaporate like the mirage it is!”

In my opinion, the most solid advice in this article....

I will be absolutely shocked if we get to this time next year and QE3 hasn't happened. I think Schiff is right, all of the positive numbers we are seeing from housing to unemployment are a sham. If the markets start to tank this summer I have little doubt that Bernanke will be "forced" to pull the trigger on more liquidity. But that's just me...

Oh, and historically pm bull markets last from 15 to 20 years so we have at least another 5 to go if you want to use history as precedent.

Thanks for sharing 20. +1

WW.

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Take a look at the Weekly chart of gold you will notice that peaked in September of 2011 in the 1900's. Since then we have been seeing lower highs and lower lows which indicates a bearish market on Gold.

*This does not mean that gold will not rise again to new highs in the future, however, my prediction is that we will be seeing even newer lows here real soon. Probably in the low 1500's and possible lower than that.

This is not meant to be combative 20, and I hope you don't take it that way. I do have a different view, though.

I think the new floor for gold has been established at $1600. If gold goes below $1600 into the $1500's it will either be high $1500's or, if it dips to mid-to-low $1500's, it won't stay there long. But that's just my opinion. I'm never afraid to say I was wrong after the fact if I was indeed wrong.

I think the central banks are too heavily invested now in gold and have an interest in keeping it above $1600. But again, that's just my opinion. I would love for it to go lower because then I could keep acquiring at lower prices. Because fiat currencies rule the day pm's will always do better, in the long run, over non-backed currencies. As the article you posted has stated.

WW.

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[/left]

In my opinion, the most solid advice in this article....

I will be absolutely shocked if we get to this time next year and QE3 hasn't happened. I think Schiff is right, all of the positive numbers we are seeing from housing to unemployment are a sham. If the markets start to tank this summer I have little doubt that Bernanke will be "forced" to pull the trigger on more liquidity. But that's just me...

Oh, and historically pm bull markets last from 15 to 20 years so we have at least another 5 to go if you want to use history as precedent.

Thanks for sharing 20. +1

WW.

I agree. Either we will see QE3 or we will start seeing higher interest rates. I actually think the latter is what we are going to start experiencing here real soon, but that is just my opinion.

I don't look at your comments at combative at all. I love hearing people's views and opinions. Personally I hope we see some newer lows down in the mid 1400's or so, if we do, time for some bargain shopping! biggrin.gif

Regardless of what happens though, precious metals will see new highs in the not so distant future, right now we are just seeing some minor pullbacks in the grand scheme of things. We aren't stopping our printing presses which means we aren't going to stop seeing inflation, therefore, prices of commodities will keep moving up.

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I agree w/ WW. I'd also like to add that there is a body of thought that the price of gold is being manipulated. Through the '90's central banks the world over were net sellers of gold. Recently, central banks have become net buyers and are accumulating gold. They want to acquire it at as low a price as possible. With the money presses in the US and the Euro zone printing at an incredible rate, inflation is all but a forgone conclusion. Also, the "recovery" in the US is a phantom. 3rd year of a presidents first term is always set up to be positive going into an election year. Unemployment in the low 8's is a farce. The labor department is not counting 2 million jobs not being filled that were being counted in the full labor market 3 years ago. If those 2M jobs were being counted, unemployment would be over 10% and Obama's chances of re-election would be toast at this point. The labor dept/administration is cooking the books and the media is carrying their water on it.

If you are not acquiring gold as a store of wealth, you should strongly consider it. When the dinar RV's, that would be an excellent time to use some disposable income to purchase precious metals.

Mak63

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Gartman either simply does not understand gold and what it is or purposely outright lies.

He has been about the worst timer in the world for gold.

Normally whatever he says about gold has actually turned out to be the exact opposite in real market.

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Personally I hope we see some newer lows down in the mid 1400's or so, if we do, time for some bargain shopping! biggrin.gif

I would love to see that happen....

We shall see soon enough, friend. smile.gif

I'd also like to add that there is a body of thought that the price of gold is being manipulated.

Mak63

I am definitely in the body of thought that thinks this... and not just gold, either.

Good points. +1

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Can you say JPMorgan and Silver Shorts.......

Mak63

Exactly! In fact, they are the ones who created the $100 drop in Gold on February 29, 2012. They sold 15,000 Gold contracts! That is 1.5 million ounces of the yellow metal worth over $2.5 billion! That selling triggered stop loss selling and the rest is history: gold plummeted and silver followed.

...I can only think that the market action in gold and silver yesterday was intervention. Bernanke speaks; JPM sells huge quantities of gold. It appears to me that in an election year, the powers that be want to do anything in their power to avoid a pickup in inflationary pressures, and higher gold and silver prices are like a giant neon sign pointing directly at them.

Yesterday’s action appears to be designed and coordinated. The selling curbed the enthusiasm of precious metals bulls.

This action smells rotten. It reeks of the long arm of the government suppressing prices. It is only a matter of time before market forces rule the day. Today, prices are on the rebound with gold trading around $1720 and silver around $35.60. Gold is going above $2,000 an ounce in 2012 and silver will make a new all-time high. There is only so much ammo the government can throw at these global free markets.

In the meantime, be ready: volatility in precious metals is here to stay!

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